It could become a financial fraud scandal unlike any other. Hindenburg Research, a less than 5-year-old small trading and financial research firm based on Wall Street in New York, accuses the Indian industrial conglomerate of billionaire Gautam Adani of nothing less than the "greatest fraud in economic history."

Hindenburg claims it has found evidence of "brazen stock manipulation" and financial fraud at Adani Group.

The Indian conglomerate owns half a dozen major companies with interests ranging from energy to transportation and infrastructure development. At the same time, it's India's largest port operator and manages some of the country's biggest airports. The group's listed trading house, Adani Enterprises, reported $9.3 billion (€8.5 billion) in sales in the fiscal year 2022, which ended in March.

In January, Hindenburg founder and chairman Nathan Anderson issued a 100-page report accusing Adani of using a web of companies in tax havens such as Mauritius and the Bahamas to inflate revenue and stock prices. The report also said family members were installed in top positions and that the Group falsified balance sheets to cover up debts, pumping up Adani shares by a staggering 85% in recent years. 

Since the release of the report, Gautam Adani's personal net worth has shrunk by over $50 billion. The man who last year was considered wealthier than Bill Gates and veteran investor Warren Buffet has now slipped to 15th place on Forbes Magazine's List of Billionaires.

The short-seller from Connecticut

Nathan Anderson graduated from the University of Connecticut with a degree in international business. After that, he did a brief stint as an ambulance driver in Israel. Then, he started his career in finance at data company FactSet Research Systems, where he worked with investment management companies.

"I realized they were doing a lot of run-of-the-mill analysis, there was a lot of conformity," he had told the Wall Street Journal (WSJ) in 2020.

In 2010, he left FactSet to develop his own money investment strategies for so-called boutique investment houses — those focused on a specific segment, such as corporate finance and wealthy families. It wasn't until 2017 that he founded Hindenburg Research.

His great role model is Harry Markopolos, a securities manager who is considered one of the most successful US investigators in financial fraud. Makropolos made a name for himself with his research on Bernie Madoff, whose investment firm turned out to be a Ponzi scheme in 2008, marking the biggest fraud in US history to this day.

Impressive 'kill rate'

On its website, Hindenburg says it looks for accounting irregularities, mismanagement and undisclosed related-party transactions. The firm invests its own capital to shorten the stocks of companies it finds indulging in any wrongdoing.

Anderson already has an impressive track record of exposing supposedly successful firms. During the COVID-19 pandemic, he sounded the alarm when a wave of startups went public through so-called SPAC stock market vehicles and quickly posted massive gains. Hindenburg's research revealed that many of these companies not only failed to turn a profit but often didn't even have viable business models to show for, despite billions in stock market value.

The company now employs about ten people, including former journalists and financial analysts. In recent years, they have published dozens of investigative reports targeting companies such as bitcoin-mining company Riot Blockchain and gold producer Pershing Gold. In at least 16 cases, the company says on its website, its findings led to regulatory investigations and criminal charges.

The downhill ride of Nikola

Hindenburg is best known for its bet against electric-truck maker Nikola in September 2020, when it accused company founder and former chairman Trevor Milton of deceiving investors about its hydrogen-powered truck technology. Anderson challenged a video Nikola produced showing its electric truck cruising at high speed — when in fact, the vehicle was simply rolled down a hill. Ten months later, Milton was indicted by New York federal prosecutors on four counts of securities fraud. Nikola's stock collapsed by 94%.

Another target of Anderson was US electric-car maker Lordstown Motors, which he accused in a 2021 report of inflating orders and whitewashing its production schedule. 

The research firm's name, Hindenburg, derives from the German airship that exploded in New Jersey in 1937, killing 36 passengers. "We view the Hindenburg as the epitome of a man-made, completely preventable disaster," the company's website says, adding: "We look for similar man-made disasters circulating in the marketplace and try to clear them up before they attract more unsuspecting victims."

Adani scandal: A battle of David vs. Goliath

Anderson now smells such fraud at the Adani Group, causing the Indian company's stock to bleed heavily in recent days, despite a 413-page response issued by Adani. The Indian industry mogul has rejected the accusations as unfounded, unmotivated and even as an attack on India in general.

Meanwhile, Hindenburg has cashed in on shortening the Adani stock — a financial strategy that short-sellers claim serves an important watchdog function. As a matter of fact, so-called financial forensic research is needed to uncover financial fraud, or hidden market distortions, that could throw entire economies into crisis.

Anderson defended his allegations in a statement on Twitter. 

Research done by financial-market data provider Refinitiv seems to prove Nathan Anderson right. Hardly any of the companies he targeted in the past two years has recovered after an attack, while only three companies returned to positive stock returns. Twelve other companies are still struggling, with losses in their market value of between 19% and 99%.

Other data provided by the S3 Partners financial marketplace shows short sellers made $300 billion in profits last year alone.

Whether Gautam Adani will recover from the scandal is far from clear.

Hindenburg, which has gained massive financial firepower from shortening the Adani stock, said it stands by the published report and would "welcome" litigation.

Even though Adani has called off a planned $2.5 billion stock offering in light of the attack, he seems determined to take the legal route.

This article was originally published in German.